·
The domestic market was tiny and
demanded a wide range of vehicles – luxury cars for government officials, large
trucks to carry goods to market, small trucks for Japan’s small farmers, and
small cars suitable for Japan’s crowded cities and high energy prices
·
The native Japanese work force was no
longer willing to be treated as a variable cost or as interchangeable parts
·
The war-ravaged Japanese economy was
starved for capital and foreign exchange.
·
The outside world was full of huge
motor-vehicle producers who were anxious to establish operations in Japan and
ready to defend their established markets against Japanese exports
In
the thirteen years prior to 1950 Toyota had produced a total of 2,685
automobiles. When compared to the 7,000
automobiles produced per day produced by a single Ford plant in 1950 it was
apparent that Toyota would not be able to compete with Detroit’s ability to
mass produce a wide range of vehicles using the same practices.
Eiji
Toyoda engaged the Toyota workforce in a continuous incremental improvement process
that indeed changed the world. In 2008,
for the first time in 78 years, Toyota sold more cars and trucks around the
world than GM; the former number one automobile manufacturer.[ii] Toyota achieved its objective of becoming
more competitive.
Michael
Porter describes companies as “a system of activities in which competitive
advantage reside.”[iii] These activity systems are not merely a discrete
collection of independent activities that can be optimized to perform a
particular “function.” They must “fit” together
as part of an integrated system to create a sustainable competitive advantage.
Such systems, by their very nature,
are usually difficult to untangle from outside the company and therefore hard
to imitate. And even if rivals can identify the relevant interconnections, they
will have difficulty replicating them. Achieving fit is difficult because it
requires the integration of decisions and actions across many independent
subunits.
Fit
is a process strategy for maximizing the value created from available
resources. Not only must activities be
designed to maximize the value created by their parent process, they must also
be designed to help maximize the value of as many other processes as possible. Fit looks for relationships between otherwise
seemingly unrelated process activities that if strengthened would result in
greater value produced by the activities as a whole. The strategy of Fit is for each process to
fit-like-a-glove with the other processes of an organization.
Fit
is the companion strategy to Function.
Function is a process strategy for minimizing the cost of the individual
activities of each process. Whereas Fit
focuses on process value alignment, Function’s focus is on cost reduction. Fit and Function are the Yin and Yang of process
strategy. At least one, preferably both,
are necessary to achieve a competitive advantage.
As
Porter describes, for a company to compete:
It must deliver greater value to
customers or create comparable value at a lower cost, or do both. The
arithmetic of superior profitability then follows: delivering greater value
allows a company to charge higher average unit prices; greater efficiency
results in lower average unit costs.
Toyota
achieved a sustainable competitive advantage by delivering greater value at
lower costs than GM and the rest of the automobile industry. They achieved
process Fit and Function by continuously looking for ways to reduce the cost of
each activity; as well as how each activity could increase the value of other process
activities; including those of suppliers and customers.
[i] James P. Womack, Daniel T. Jones and Daniel
Roos, The Machine that Changed the World,
HaperCollins (1991)
[ii] Inside Wheels.ca, Toyota Knocks GM from No. 1, The Associated Press (2009)
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